Educational MBA Student Loan Options
The most popular master’s degree in the United States today is the master of business administration, or MBA. For the school year 2011-2012, advanced degrees in business made up 25 percent of all master’s degrees earned, with 191,571 graduating with an MBA as published by Fortune. The completion of a master’s degree can increase your market value and offer a great return on your investment. The difficulty lies in how you are going to finance the degree program before getting that great post-graduation, higher-paying job you hope the MBA will bring you.
First and foremost, check into scholarships, grants, and fellowships. Many companies may even offer to sponsor you, paying for your degree, in return for you agreeing to work for them upon graduation. Individual schools and even private organizations may offer scholarships that can help defer at least some of your costs. Scholarships and grants are free money that you don’t have to pay back, so be sure to check into any and all opportunities for which you may qualify. After you have exhausted all the sources of free money, it may be time to start looking at student loans. Student loans are available from the federal government as well as private financial institutions. Student loans typically have competitive interest rates and reasonable repayment options.
The William D. Ford Federal Direct Loan Program offers Direct Unsubsidized Loans to graduate students for low-cost and low fixed-interest rates. These loans are not based on financial need or your personal credit history, and they are disbursed by the U.S. Department of Education. The annual maximum amount you can borrow as a graduate student is $20,500 with an interest rate of 5.31 percent for the 2016-2017 academic year. This interest rate can change annually based on market trends, but it will remain fixed at the amount you lock in when your loan in disbursed for the life of your loan. There is also a loan fee of 1.068 percent on top of this, which is basically upfront interest rolled into the cost of your loan.
For Direct Unsubsidized Loans, you do not have to pay your interest while in school, but if you don’t, it will accrue and be capitalized, or added to the principal amount of your loan. Interest is charged starting from when the loan is first disbursed until you pay it off completely. You may also be able to claim up to $2,500 in paid interest on your federal income tax return each year.
In order to be eligible for a Federal Direct Loan you must:
- Be a U.S. citizen, U.S. national, or eligible non-citizen
- Have a valid Social Security number
- Males between the ages of 18 and 24 must be registered for the U.S. Selective Service
- Not be in default for any other federal loans
- Sign a statement that you will use the funds for educational purposes only
- Be accepted or enrolled in a participating degree or certificate program
All eligible graduate students who attend a participating school at least half-time can take out a federal Direct Loan. Direct Loans are generally disbursed twice a year, usually in the fall and winter, directly to the school to pay for tuition and school fees. Any remaining money will then be disbursed directly to you to cover additional educational expenses, which may also include room and board. There is an aggregate amount, or loan cap, on the total amount of money you can receive through Direct Loans. For graduates, this amount is $138,500 and includes any undergraduate federal loans you may have received. After graduation, you will receive a grace period of six months before your repayment period starts. If you still need financial assistance on top of what you have received from Direct Loans, you can apply for a GradPLUS loan.
Federal GradPLUS loans also offer low-interest and fixed rates and are disbursed by the U.S. Department of Education. While the GradPLUS loan is also not based on income or financial need, it does require a simple credit check. The GradPLUS loan has a slightly higher interest rate than the Direct Loan at 6.31 percent for the 2016-2017 academic school year. It also has a loan fee of 4.272 percent for loans disbursed after October 1, 2015. You can borrow up to the full amount of your graduate school attendance costs, as set by your school, with a GradPLUS Loan minus any other financial aid you are already receiving, including Direct Loan money. For example, if your cost of attendance is $60,000 a year and you are getting $20,500 from a Direct Loan, you can borrow up to $39,500 in the form of a GradPLUS Loan.
Eligibility for a GradPLUS Loan is much the same as that of a Direct Loan with the exception of the credit check. Adverse credit is defined as:
- Delinquent on any debt for 90 or more days
- Tax lien
- Bankruptcy discharge
- Default determination
- Write-off of Title IV debt
- Wage garnishment
If you do have adverse credit, you may still be able to receive the GradPLUS loan if you obtain an endorser, or cosigner, with good credit. Like with the Direct Loan, you may be able to write off some of your interest payments on your federal income taxes. Repayment for your GradPLUS Loan will start when you either graduate or drop below half-time status.
Federal Loan Application Process
In order to apply for federal financial aid of any sort, you must first fill out the Free Application for Federal Student Aid, or FAFSA. You will need your Social Security number, most recent federal income tax information, and any other relevant bank or financial information. You will also need to create a FSA ID, which will act as your digital signature and grant you access to all of your personal federal financial aid information. The FAFSA will calculate your expected family contribution, or EFC, in order to determine what type and how much financial aid you are eligible for. Graduate students are automatically considered financially independent in the case of the EFC and FAFSA. You must reapply for federal financial aid and resubmit your FAFSA every year.
In addition to, or in lieu of federal loans, private student loans are an option for MBA students, as well. Private loans come in many forms with varying interest rates, fees, and costs associated with them. Financial institutions and commercial lenders disburse private loans. They may have customizable options that may be more beneficial to you than standardized federal loans. Private loans may have lower interest rates, but they are often variable, meaning that they can change and may go up drastically over the life of your loan. Most MBA programs are only two years, however, so it may be worth it to you to take the chance with a lower variable interest rate.
Interest rates for private loans are generally either based on a LIBOR or Prime index. The LIBOR index relates to U.S. dollars and the London market and is the rate that lenders can borrow money from other banks. Private loans are then based on an average of either one or three months of this LIBOR index. Prime is established as the Prime lending rate published in The Wall Street Journal and is what banks charge their customers who are the most credit worthy. Prime is generally used to set credit card interest rates. Typically, the Prime rate is higher than the LIBOR rate. Generally speaking, the LIBOR may be less expensive over time. A financial advisor may be able to help you chose the right loan terms for your situation. Be sure to be aware of what the actual interest rates are and not the advertised lowest possible price. Also, many private loans have associated fees that can raise your rates. Be sure to be aware of any potential hidden costs before you sign anything.
Often, federal loans don’t cover the costs of top-rated business schools, and you may need additional funds to bridge the gap between your federal loans and the cost of school. It is important not to over borrow, however, as private loans typically have stricter and less flexible repayment options. Private loans also often do a credit check and may require a cosigner in order to meet their eligibility requirements.
If you do not have a valid Social Security number, or you are an international student looking to receive your MBA in the United States, there are financial aid options for you as well. Most schools will work with specific lenders in order to offer private loan options for international MBA students. These loans usually have variable interest rates, but they may not require a cosigner. Sometimes these loans have specific requirements, such as good grades, in order to qualify. Be sure to check with your school’s financial aid office for more information on MBA loans for international students.
Types of Student Loans
- Student Loans Home
- 911 GI Bill
- Alternative Schools
- Flight School
- For Bad Credit
- For Community College
- Funding Graduate School
- GI Bill
- Interest Free
- Low Interest
- Medical School
- No Co-signer
- No Credit Check
- Obama Loan Forgiveness
- Parent PLUS
- Part-Time Students
- Post 911 GI Bill
- Private Loans with No Co-signer
- Private School
- Subsidized Loans
- Without Co-signer